Asian markets continued to rebound on Wednesday, ending the session broadly higher as investors took their cue from Wall Street and shrugged off any escalating geopolitical risks between the U.S. and North Korea. Hong Kong’s Hang Seng led gains in the region once again, and Japanese equities were stronger as export companies led the rally there in response to the Yen losing roughly 1% versus the USD since the previous session closed.
European markets headed higher Wednesday as investor sentiment improved and market gloom over the North Korean missile launch receded. Investors seemed more welcoming of risk as they got over their worries of escalating tensions between the U.S. and North Korea, sending equities broadly higher across the region. A stronger-than-expected reading on German inflation helped matters, as did a retreat in the Euro against the U.S. dollar. Economic sentiment in the EU climbed to 10-year highs, and while consumer confidence remained negative in August, it was improved over the July reading. U.K. markets broke a two session losing streak as the FTSE100 also headed higher in London on improved risk appetite. The gains came despite continued strength in the Pound versus the USD.
Better-than-expected readings on U.S. GDP and new employment helped lift U.S. markets, with the S&P 500 registering a fourth consecutive winning session, and the Nasdaq outperforming strongly. Investors were encouraged regarding U.S. growth after second quarter GDP was reported as 3%. There was also talk of tax reform later in the day from Washington which gave markets a further boost higher. Absent from today’s session was any worries over tensions between the U.S. and North Korea as the late Monday missile has been downplayed by media and seemingly shrugged off by market participants.
FOREX
EUR/USD
After posting a bearish shooting star in Tuesday’s session the pair respected that bearish pressure and fell sharply on Wednesday, losing nearly 100 pips and dropping below the 1.1900 level. Fundamentally the pair was reacting to stronger than expected U.S. economic data that caused the USD to strengthen. EUR/USD could go down even further in the coming days, although EU CPI data on Thursday could short-circuit the downdraft in the pair.
USD/JPY
With risk appetite returning to markets and safe haven demand melting away, this pair rose steadily throughout Wednesday’s session, settling above the 110.00 level for the first time in two weeks. It was the second session of gains for USD/JPY, but it is rapidly approaching an area of resistance around the 110.80 handle, and should test that resistance in Thursday’s session.
Cryptocurrencies
Cryptocurrencies continued their rally on Wednesday, making gains along with the traditional markets. Bitcoin has now traded higher for six consecutive weeks, coming off a low near the $1,850 level and showing little signs of exhaustion.
Commodities
Metals
Precious metals retreated on Wednesday, with gold breaking a three session winning streak. Still, gold remains comfortably above $1,300, and palladium remains at 16-year highs. Copper also settled lower due to the stronger U.S. dollar, but remains in a bullish trend as traders bet on an uptick in Chinese demand for the industrial metal.
Oil
Traders ignored data showing a sizeable drop in U.S. crude inventory levels as they now see the data as irrelevant following the Gulf Coast landfall of hurricane Harvey this past weekend. Instead they sent crude lower in expectation of falling demand for crude due to extensive refinery closures around Houston and along the Gulf Coast.
Indices
S&P 500
The S&P500 gained for the fourth session in a row Wednesday, which is the longest winning streak for the benchmark index in roughly three months. The gains were broad based, with eight sectors finishing green, and only the defensive sectors finishing lower as risk appetite returned to market participants following better-than-expected economic data, and more talk from President Trump regarding tax reform.
Dax
Germany’s index climbed 0.47% on Wednesday, snapping a three session losing streak as investors were more upbeat. Risk appetite improved as a drop in EUR/USD helped lift shares of German export companies. Investor sentiment also improved in response to Germany’s annual inflation rate rising to 1.8%, which gave hopes that inflation across the rest of Europe is also heading higher.
Stocks
Amazon (NASDAQ:AMZN)
A report issued Wednesday by Moody’s Investors Service suggests that Amazon isn’t really as dominant as people believe. For example, while Amazon certainly dominates in online retailing, 90% of U.S. consumer purchases are still made in stores, meaning competitors such as Wal-Mart (NYSE:WMT) and Target aren’t going away anytime soon. The Amazon myth has created a perception that its takeover of Whole Foods will allow it to dominate the grocery space, but that simply isn’t true as online grocery spending is even lower than most other segments. Still, Amazon shares are likely to move higher, simply based on the growth story behind the company.